New Health Insurance Law—Finally a Break for Small Business!


Finally, small businesses can get a benefit for providing health insurance coverage in the form of a new tax law!  Many small businesses have had to abandon providing health care for their employees or go out of business.  The Patient Protection and Affordable Care Act (ACA) includes several short- and long-term provisions designed to help small businesses pay for and maintain health insurance for their workers.

Some of the key provisions include the following:
• Tax Credits to offset premium costs.
• Insurance exchanges to lower administrative costs and pool risk.
• New market rules and Benefit standard to protect small firms and their workers.

The ACA Health care reform act was signed into law on March 23, 2010, and September 23 marks the date when several important parts of the law became effective.  As with most politically charged laws, the new legislation is not perfect. However, the new provisions address some of the most difficult health insurance coverage challenges for small businesses.

In rural areas having many small businesses, the uninsured rates are higher than in urban areas.  Rural economies lose jobs at a faster rate than the rest of the nation, and loss of jobs can lead to loss of health care coverage.  Job losses have contributed to high poverty rates in the current economic recession and that situation has highlighted the difficulties of accessing health care.  Nearly a third of rural Americans work for small businesses, but less than half of them have health insurance, as employers struggle to provide health benefits.

Listed below are several of the new health care benefits:
• Bans denials due to pre-existing conditions
• Prohibits dropping people when they get sick
• Ends lifetime limits on health insurance benefit
• Provides health insurance for children through age 26
• Provides free preventive care

The ACA has several provisions directly benefiting small businesses.  Listed below are some of the key benefits for small businesses:

Tax Credits. The one with the most impact is the tax credit, providing up to 35 percent of the premiums a small business pays to cover its workers starting immediately this year.  In 2014, the rate will increase to 50 percent.  The Congressional Budget Office (CBO) estimates that the tax credit will save small businesses $40 billion by 2019.  This provision also includes small not-for-profit organization.
Again, small businesses providing health care for their workers receive immediate help with their premium costs.  Firms initiating coverage this year will also get a tax cut. The credit is effective January 1, 2010.  Eligibility for the tax credit targets small businesses with less then 50 employees.  To qualify firms must have less than the equivalent of 25 full-time workers, pay average annual wages below $50,000, and cover at least 50 percent of the cost of health care coverage for their workers.
A provision for firms with fewer than 50 half-time workers is also eligible but the tax credit is on a sliding scale.  The credit is worth up to 35 percent of a small business’s premium costs in 2010, however, on January 1, 2014, the rate increases to 50 percent.  Tax-exempt organizations are eligible for a 25 percent tax credit in 2010. In 2014, this rate increases to 35 percent.  The tax credit phases out gradually for firms with average wages between $25,000 and $50,000.  This includes firms with 10 and 25 full-time workers.

Health Insurance Exchanges. Generally, small businesses have had limited bargaining power with health insurance companies.  Higher administrative costs to set up and maintain health plans are disproportionately absorbed by small businesses.  In 2014, firms with 100 or less workers will be able to participate in a buying pool to purchase through an insurance exchange.  This new insurance exchange is designed to reduce administrative costs, thus lowering the rates.

End of Sick Workers’ Price Discrimination. Just one sick worker can significantly increase a firm’s premium.  Starting in 2014, under the new community rating provision an insurer cannot charge more to cover a small business with sick workers and they cannot raise rates when someone becomes sick.
End of “Job Lock” to Unlock Entrepreneurship. Workers with families or with health issues are locked into jobs working for big firms.  These large firms can absorb the cost of covering pre-existing conditions.  By eliminating exclusions for pre-existing conditions and price discrimination, small firms become able to attract the best workers from the larger firms and entrepreneurs can leave from large firms to start new enterprises.

Now is the time to calculate the savings. The political rhetoric about the cost of health care reform will continue.  The new health reform law is in place and the time to act is now.  Your small business is unique, your revenues, expenses and taxes are unique.  So sit down with your accountant and a health insurance provider and take the time to find out more about how you can cut your taxes, save money and provide your employees with health insurance coverage.

James Ellis is an assistant professor in the business department of Central Oregon Community College.  He can be reached at 541-383-7718.


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